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PLANNING HANDBOOK
The Practitioners’ Guidebook for Building Outside-In
Supply Chain Planning Processes
N OV E M B E R 2023
Lora Cecere
Founder of
Supply Chain Insights LLC
2 2 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
DISCLOSURE
Your trust is essential. To build confidence in the industry, we are open and transparent about financial
relationships and our research processes. This independent research, written by Lora Cecere, the founder of
Supply Chain Insights, explores the possibilities of outside-in planning based on three years of testing.
Please share this research freely within your company and across the industry. All we ask for in return is
attribution when you use the materials. All we ask for in return is attribution when you use the materials. We
publish under the Creative Commons License Attribution, and you will find our citation policy here.
THE3OUTSIDE-IN PLANNING HANDBOOK | 2023 3
Overview
This report is based on three years of testing of outside-in planning concepts. The pilot work mentioned in the report is based upon pilot
work with o9 Solutions and OMP.
Methodology
In January 2021, we initiated work to define outside-in planning During the summer of 2023, a second advisory group started
processes with an Advisory Group, nicknamed Project Zebra. using the name Project Spark. The members included:
The group was composed equally of business and technology
Advisory Board Members Project Spark: Vipul Desai, Dow;
leaders who brainstormed on the future state of planning
Tracy Johnson, Dow; Dave Winstone, Dow; Thomas van
through monthly meetings throughout 2021-2022.
Woensel, Eindhoven University of Technology; Danny Kim,
Advisory Board Members for Project Zebra: Douglas Kent, General Mills; Kirsten Olson, General Mills; Pascal Van
ASCM; Jason Robke, Boeing; Rebecca Vohl, BSH; Dave Hentenryck, Georgia Institute of Technology; Tomaz Vrabec,
Winstone, Dow Chemical; Daniel Corsten, IE Business Land O’Lakes; Margo Cohen, Nestle; Tim Blake, OMP;
School; Peter Schram, Independent Consultant; Chris Lennert Smeets, OMP; Jo Vernelen, OMP; Aditya Karnik,
Tyas, Retired Nestle; Fred Baumann, o9 Solutions; Lukasz OMP; and Bob Herzog, Retired P&G;
Zieba, o9 Solutions; Tanguy Caillet, o9 Solutions; Steven
The groups tested five use cases to understand the value
Daugherty, Samsung; Olivier Redon, Schneider Electric; Lora
proposition. 225 business users and technologists completed
Cecere, Supply Chain Insights; Phillipe Lambotte, Tonal; Bob
the training in the past three years. An ongoing steering group
Masching, Trident Seafood; Arnd Huchzermeier, WHU; and
continues to guide the direction of the work:
Stephanie Thomas, University of Arkansas;
Steering Group Members: Michel Huber, BSH; Dave
The insights from the work with the Project Zebra advisory
Winstone, Dow; Nicole Miera, LKQ; Margo Cohen, Nestle;
group were used to build a virtual three-day seminar. The open
Olivier Redon, Schneider Electric; Mathew Smith, Western
class, advertised on LinkedIn, filled up to capacity in twenty-four
Digital; and Arnd Huchzermeier, WHU.
hours with forty-eight business leaders. The goal was to gain
additional insights while validating prior work. Figure A depicts the groups' view of an outside-in supply chain
planning process.
4 4 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Balanced Scorecard
Return on
Inventory Customer
Growth Margin Invested Safety
Turns Service
Capital
Plan
Channel Signals Supply
Signals
Circular Economy
Enable
Logistics Signals
THE5OUTSIDE-IN PLANNING HANDBOOK | 2023 5
TA B L E OF C ONTENTS
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Bi-Directional Orchestration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Rethinking Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Unlearning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Getting Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
APPENDIX
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Executive Summary
Three assumptions defined the global supply chain: rational turns, and Return on Invested Capital (ROIC). Companies
government policy, logistics availability, and low variability. want to grow while improving margins, customer service,
Connectivity, sensor advancement, ocean transport scale, and inventory turns, and asset utilization2. The answer is not easy.
advanced mathematics/optimization advances made the global The transition requires a shift in focus to understand how
supply chain possible. During the last decade, improvements in performance drive value.
while technology advancements increased, the ______________________________
The shift from inside-out to outside-in planning
base assumptions are no longer valid. Definition: Enterprise resilience is the
is a step change, not an evolution, requiring
ability to drive consistency in the results
Markets and disruptions increased. Economic of growth, operating margin, inventory a redefinition of planning architectures and
cycles increased becoming more regional. The turns, quality, and customer service thinking. The concepts also challenge consortia
answer? Many might point to technology, but despite market shifts and disruption. and consulting thinking. The change takes
ironically, during this period, while technology ______________________________ time and courage while building organizational
advancements to drive insights accelerated, capabilities. To make the transition, companies
the adoption was low. need to be clear on the mission (definition of
supply chain excellence), measurement (measurement systems
As business leaders sort through this new reality, driving
drive behavior), and modeling (modeling changes as companies
resilience while improving performance is difficult. They must
attempt to be outside-in). Today’s focus is on building better
also recognize that achieving economy of scale in supply chain
engines without questioning whether current models improve
execution is an opportunity. In our research, regional supply
outcomes.
chains outperform global peer groups, and no company gained
economy of scale in performance through M&A1. The analysis So, you might ask, why tackle this journey? Based on three
is based on the metrics of growth, operating margin, inventory years of testing, we find that the redefinition of supply chain
1
Supply Chains to Admire 2022 – Supply Chain Insights
2
Lessons Learned From the Supply Chains to Admire Analysis, https://www.forbes.com/sites/loracecere/2022/12/06/lessons-learned-from-supply-
chains-to-admire/?sh=7551703951c6, December 6, 2021
8 8 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
planning to be an outside-in market-driven process improves Then, and only then, will business leaders realize that with the
Forecast Value Added (FVA) by 10%, removes bias, improves movement from regional to global planning, that the problem
the time to know by 150%, and decreases the changed, but the technology platform did
______________________________
bullwhip by at least 50%. In the research, we not accommodate the shift. As a result, just
find that the deployment of an outside-in model A taxonomy is a series of updating planning engines is not sufficient.
always beats an inside-out model, reducing models powered by engines to Improvements require rethinking the approach.
process and data latency while improving the improve decision-making. In We must continually redefine the modeling
organization’s ability to make decisions at the today’s framework, examples of and align metrics to outcomes to drive the
speed of business. supply chain planning models industry forward. In the process, the important
are Distribution Requirements questions are:
As more executive boards drive ESG
Planning (DRP), Forecasting, • Is the team solving the right problem?
(Environmental, Social, and Corporate
Inventory Management, Production
Governmental Policy) improvements, reducing • Does the approach help the organization
Scheduling, and Transportation
supply chain waste is essential. Making make better decisions?
Planning (TMS). The consumption
decisions at the speed of markets is core to
and alignment of the outputs, • Do the decisions improve value?
accomplishing these goals.
along with the workflow, of multiple • What defines a good plan?
The shift will take time. Within the industry, models defines the taxonomy.
technology leaders are pushing solutions to ______________________________ In this report, we start by sharing insights on
improve the “engines” within existing planning the current state and follow by sharing an
taxonomies without asking, “What is the outside-in approach for supply chain planning and making a
problem we need to solve?”. Understanding the inadequacies case for change. To improve the understanding of the work, we
of the inside-out approach and current taxonomies, becomes share a glossary of terms in the appendix. We feel that aligning
clearer as business leaders struggle with results. definitions is essential.
THE9OUTSIDE-IN PLANNING HANDBOOK | 2023 9
Growth
Profitability
Cycle
Complexity
turns of 4.92. Plotting metrics against each ______________________________ Companies following traditional supply chain
other allows business leaders to see their “The complexity of the supply chain arises
practices focused on transactional data do
pattern against their peer group. Ecolab from the number of echelons in the chain and not outperform. The use of functional metrics
outperformed the industry in both metrics the number of facilities in each echelon. Given and close coupling of the supply chain to the
the inherent complexity of the typical supply
until 2020 but slipped and underperformed in financial budget is a barrier to driving balance
chain, selecting appropriate performance
margin during 2020-2022 measures for supply chain analysis is sheet improvement. A worst-case scenario is
particularly critical since the system of defining the supply chain as another function
Performance is complex to sustain through interest is generally large and complex.” within a rigid set of silos. The best supply
management changes. In the case of
Benita Beamon, Measuring Supply Chain
chains are focused on using market data and
Ecolab, a new executive team in 2013 drove
Performance, International Journal of Operations and improving customer outcomes.
improvement but could not support it with Production Management, VOL 19, 1999.
management turnover and the variability of ______________________________ Getting clear on the mission and the
the pandemic. definition of supply chain excellence is the
first step in building outside-in processes. The next step is re-
There are many barriers to beating the peer group in
evaluating the modeling.
improvement, performance, and value. Smaller, innovative,
newer companies focusing on customer value tend to win the
Supply Chains to Admire award.
Best Scenario
7.00 Best Scenario
Fundamental
Average Scores 2019
6.50 Ecolab = 9
Industry = 8
ECL
6.00 0.14, 5.35
2016
Inventory Turns
2014
2013 2017
5.50 2013 2020
2016
Chemical
0.11 4.92 2014
5.00 2015 2021 2015
2020 2017
2022
2019 2018
4.50 2022
2018
2021
4.00
0.07 0.08 0.09 0.10 0.11 0.12 0.13 0.14 0.15 0.16 0.17
Operating Margin
Fundamental Average Scores
Ecolab Ecolab
=9 Ecolab
Chemical Industry Chemical Industry
Average (operating margin, inventory turns)
Industry = 8 ◆Average (Operating Margin, Inventory Turns)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2013-2022 from YCharts
Inside-Out Process
Modeling
In 1982, Keith Oliver, a British Logistician, defined the term assumed that tight integration of supply chain planning (APS)
supply chain as planning, implementing, and controlling the to ERP improved decision-making. ERP is a ledger of historic
supply chain operations to satisfy customer transactions which has less importance in the
______________________________
requirements as efficiently as possible3. building of outside-in processes.
TYPES OF LATENCY
The goal was interoperability across source,
In traditional deployments, organizations are
make, and deliver. Planning evolved from this Demand Latency: The time from purchase
in the channel to visibility at the order- aligned within a function but fail to make better
definition.
level. decisions cross-functionally. This focus on
Achieving this goal is not possible with today’s functional optimization is a barrier to improving
Market Latency: The time for a shift in a
supply chain planning processes. The reason? market driver to appear in the order signal. resilience4.
The current definition of planning improves
Data Latency: The time to collect, clean, The transactional systems in ERP are more far-
functional optimization but does not drive synchronize data.
reaching, providing end-to-end capabilities for
bi-directional orchestration across source,
Process Latency: The time it takes for an order-to-cash and procure-to-pay capabilities,
make and deliver. As a result, the system organization to make a decision. but the optimization within planning systems
never considers trade-offs. As a result, cost
Latency, or inaction, is a major barrier to does not similarly span cross-functional
reductions do not translate to margin. And,
driving agility, and driving improvement in flows. Instead, the planning technologies, with
while trade-offs are considered in network business results.
different data models, are linearly threaded
design technologies, in practice, this modeling
______________________________ through an ERP backbone, increasing waste,
is deployed in one-off ad-hoc analyses, not as
the bullwhip effect, and decision latency.
a systemic planning process. Network design
(Our research finds that over 95% of global
solutions are usually operated by a separate team operating as
manufacturers with over $1B in annual revenue implemented
a service to help the supply chain and not as a part of holistic
ERP during the past two decades5.)
planning processes.
Tight integration to enterprise data drives insular thinking and
While organizations bandy about terms like End-to-End Supply
adds latency—a risk during disruption. Moving from an inside-
Chain Management, the current data models for planning are
out to an outside-in approach improves the time to decide while
not end-to-end. To illustrate that companies, have different
improving outcomes.
data models, consider that Distribution Planning (DRP) has
nothing in common with Transportation Planning (TMS), and The synchronization of supply chain planning to market drivers
direct procurement does not interoperate with manufacturing improves customer service, removes bias, and reduces the time
applications. As a result, the concept of end-to-end planning is a to make a decision.
misnomer.
In the testing, we found that inside-out processes increase
This traditional approach is inside-out. Demand is consumed latency. As a result, the decisions are out of step with market
not managed, and the serial movement of data through shifts. The greater the variability, the more significant the gap.
supply amplifies the bullwhip effect. The system’s design also Market, demand, and process latency make bad decisions on
3
Keith Oliver - Wikipedia, November 23, 2022
4
Supply Chain Organizations Struggle For Alignment, Lora Cecere, Supply Chain Shaman Blog, Organizational Alignment: Overlooked, but So Important.
– Supply Chain Shaman, January 2, 2023
5
Supply Chain Insights Report, Embracing the Art of the Possible, Embracing the Art of the Possible – Supply Chain Insights, January 2022
12 12 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
stale data. In Table 1, we show the reduction in latency with the impact during periods of high variability. During the pandemic,
implementation of outside-in supply chain planners turned
planning. This test was with a Table 1. Reduction in Supply Chain Latency is Possible off traditional optimization
durable goods manufacturer. with Outside-in Planning Processes and utilized spreadsheets to
make over 90% of decisions.
The numerous disruptions and Market Demand Process Companies used descriptive
fluctuations in demand during Latency Latency Latency analytics and spreadsheet
the pandemic increased latency. outputs to override conventional
Inside-out 3-6 months 2-12 weeks 2-6 weeks
The planning, based on order planning systems6.
patterns, was out of step with the Outside-in 1-2 weeks 1-2 Days 1-2 weeks
market. In an outside-in process,
the time to know increases by 85%.
6
Supply Chain Insights, https://supplychaininsights.com/pandemic-report-temp/, February 2021
THE13OUTSIDE-IN PLANNING HANDBOOK | 2023 13
Forecast Value Added (FVA) is a valuable technique to analyze An additional error in the forecast has a multiplier effect on
value from the forecasting process.. A positive inventory and costs. Of the 154 students in the
FVA indicates an improvement over the naïve ______________________________ class, only one was measuring FVA at the start of
forecast (prior period sales), whereas a negative the course. In the shift from inside-out to outside-
Forecast Value Added (FVA)
FVA means that the methods and technologies in processes, there is a shift from a focus on error
analysis measures the
are making the forecast worse, not better. In eight improvement of the output of to FVA.
out of ten companies that we worked with in the forecasting process against
the naive forecast. The naive The reasons are many. Degradation of
the 2023 training, we found a negative Forecast
forecast definition varies by implementations, turnover of employees, dirty
Value Added (FVA) result. Most companies that demand stream. data, wrong models, political bias, and market
measure FVA soon realize that despite all the _____________________________ shifts. Overall, forecastability is worse in most
money spent on advanced technologies and
companies than in the days before the pandemic,
processes, the methods are making things worse.
and few companies are measuring these shifts and testing their
14 14 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
systems to ensure better outputs. In the class, we measured items are forecastable using item/location forecasting based on
forecastability using the Coefficient of Variation (COV) and order history. Fewer items became forecastable throughout the
segmented demand by stream. The results in Figure 3 are pandemic using history as a proxy for demand.
typical for the average manufacturer in the class. Only 54% of
7
What Does Good Look Like For S&OP? – Supply Chain Shaman and Strategy. Strategy. Wherefore Art Thou Strategy? – Supply Chain Shaman
16 16 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Sales account point of sale, warehouse Sales. Data is managed independently by each sales team. Three days to 2 weeks
withdrawal, and replenishment data The average food company has 40 account teams.
Syndicated data. This data comes in many Marketing. Syndicated data has a two-to-three-week latency A two-to-three-week historical view.
forms, such as IRI, Nielsen, etc. from the channel.
Order data. Retail orders. Supply Chain. Order data is a two-week to four-month view of Two weeks to four months.
channel demand.
THE17OUTSIDE-IN PLANNING HANDBOOK | 2023 17
______________________________
Outside-in processes aim to drive cross- MOVING TO FLOW: companies can drive substantial
functional collaboration on demand and • Identify demand streams. improvement through NoSQL to
supply decisions and move the organization create a real-time perpetual inventory
• Map supply streams and understand
to business-led decision-making. signal to align Available to Promise
constraints.
(ATP) and allocation strategies at the
While many well-intended data scientists • Align rules and policies based on flow. Define a
speed of business. In addition, an
attempt to improve outcomes through better feasible plan.
ontological semantic engine coupled
math, the answer lies in better mapping and • Design bi-directional orchestration levers. with a knowledge graph can automate
managing demand flows and rethinking
• Minimize the obstacles-rocks, eddies, and rules and policies to monitor planning
taxonomies. The redefinition needs to barriers. streams and connect optimization
precede planning engine redefinition. Today’s
• Design supply flows based on market drivers, more effectively. However, embracing
taxonomies reinforce functional optimization
variability, and modulating demand flow. these changes requires rethinking
and do not enable cross-functional
• Build collaboration processes for demand. architectures. Today, there is no way to
collaboration and decision-making.
effectively connect optimization outputs
• Identify the constraints for make, source and
The first step in moving to an outside- deliver.
to rules and policies.
in process is to type demand flows and
• Build a planning master data layer to align
understand the barriers and enablers
planning engines to market data.
for each stream. With advances in Web
2.0 technologies and schema on read, ______________________________
Figure 5. As-Is Flow for the River of Demand for New Product Launch for a Food Company
18 18 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Defining An Outside-in
Planning Process
The goal of an outside-in planning process is simple. The opportunity, increases risk, and exacerbates organizational
objective is to use market data—both demand and supply — to alignment issues. While demand-driven senses and translates
decrease the time to sense and improve channel data to improve the demand
the supply chain response—the expected ______________________________ signal, a market-driven value chain drives
results. bi-directional orchestration across source,
What Focus Drives Supply Chain Excellence?
make, and deliver, focusing on enhancing
The design of outside-in planning 1. Sales-driven: Alignment to a sales-driven
a balanced scorecard. The shift from
processes stretches from market to forecast.
a marketing-driven to a market-driven
market (channel to the supplier), driving 2. Marketing-driven: Organizational process is a challenging but critical goal
bi-directionally to improve organizational execution of marketing plans.
for traditional retail and consumer goods
decision-making. This starkly contrasts 3. Budget-driven. The budget defines plans companies.
inside-out processes that linearly thread as a constraint.
through a transactional backbone to In our research, when we ask companies
4. Demand-driven: Ingestion of channel
consume a time-phased demand forecast. data to improve the demand signal. to rate the importance of alignment
between organizational functions and the
The outside-in journey starts with training 5. Market-driven: Plans driven by
market signals bidirectionally current level of alignment, we find that
and organizational alignment. Alignment
______________________________ organizational alignment issues have
builds trust. The organization needs trust
grown three-fold over the last decade.
to outperform against their peers.
Issues to alignment gaps between
After defining supply chain excellence, the organization needs
commercial and operations teams are legacy. During the
to clearly determine each function’s role. A sales-driven supply
pandemic, alignment issues between the supply chain group
chain is starkly different than a marketing-driven organization.
and finance, manufacturing and procurement, transportation,
Similarly, introducing the budget as a constraint minimizes
and customer service became more acute.
7930+ 0+ 91+ 45+ 0+ 64+ 18+ 0+ 76+ 30+ 0+ 67+ 24+ 0+ 64+ 24+ 0+ 73+ 33+ 0+ 58+ 24+ 0+ 52+ 21+ 0+ 73+ 42+ 0+ 21+ 9+
Greatest Gaps Between Users & Vendors
91%
79% 76%
73% 73%
64% 67% 64%
58%
52%
45% 42%
30% 30% 33%
24% 24% 24% 21% 21%
18%
9%
Logistics and Supply Chain Logistics & Sales & Supply Chain Finance and Procurement & Finance and Finance and Customer Corporate Social
Supply Chain Planning & Procurement Supply Chain Planning & Supply Chain Manufacturing Manufacturing Procurement Service and Responsibility &
Planning Manufacturing Planning Customer Service Planning Distribution Manufacturing
______________________________
What can we learn from the research? planning redefines demand concepts. The
“83% of manufacturers report
Companies with teams from planning, sourcing, that deployed supply chain flows are sensed, typed, and profiled using the
manufacturing, and transportation reporting to technologies have not met demand analyzer for demand collaboration and
a central leader tend to be the most balanced, expectations.” supply optimization. The flows cross over the
with the smallest gaps. The organizations with Source PWC Report, 2023 commercial sales and marketing teams and
the closest alignment, as shown in Figure 6, have _____________________________ finance to enable collaboration on the demand
improved employee retention and driven growth cycle.
faster while outperforming peers on operating
Demand collaboration enables the team to determine the
margins.
following:
An example of a company that drove improvement in
• Impact of market drivers. Visibility of market and
organizational alignment is Clorox8. The Company worked with
demand latency.
Georgia Tech to train commercial and operations teams to
understand supply chain constraints and flows. The leadership • Baseline demand for products, categories, and brands.
team cited this program as a critical factor in outperforming
• Effectiveness of demand shaping. Percentage of
their peer group in job retention, margin, and growth for 2013-
demand shifting.
2021 (pre-pandemic).
• The bullwhip impact of the portfolio shifts.
For the period, as shown in Figure 7, Clorox outperformed the
household products peer group with margins of 18% compared • New product launch acceptance.
to the industry average of 16%. Clorox also had inventory turns
This monthly analysis starts the planning cycle and precedes
of 7.33 versus the industry average of 4.78.
S&OP.
After defining the roles and focus, the journey for outside-in
2015 Scenario
Best Scenario
8.50
2014 2020
2013
7.50
CLX 2016 2017
0.18, 7.33
2019
6.50 2018
Inventory Turns
2015 2014
5.50 Household
2020 2021 Non-Durable
2019 2013
0.16, 4.78
2016
4.50 2018
2021
2017
3.50
0.15 0.16 0.17 0.18 0.19 0.20
Source: Supply Chain Insights LLC, Corporate Annual Reports 2013-2022 from YCharts
8
Clorox Successfully Implements
Supply Chain Insights aLLC
Program for ©
Copyright Value Chain
2023, p. 2 Segmentation – Supply Chain Shaman
20 20 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Bi-Directional Orchestration
In the outside-in process, demand is a flow. The streams are As the organization matures and refines the demand process,
sensed, typed, and constantly aligned and orchestrated to the goal is to ask, “What is the Role of the Forecast?” Then,
improve supply flows in the demand analyzer. Flow typing based on a definition, the group aligns demand and supply
enables the assignment flows. As shown in the six-
of rules and policies Figure 8. Forecasting Planning Models in the As-Is State stage maturity model in Table
while recognizing the 5, the forecast’s role shifts
characteristics of multiple as companies move from
INPUT ENGINE PLAN
supply chains. maturity stages 2-3 to 4-6 in
the design of demand flows.
The flow is bi-directional
across the organization as The shift is from measuring
companies orchestrate demand and supply strategies based error to establishing discipline in forecasting by measuring
on market data. As shown in Figure 8, in traditional demand and tracking Forecast-Value Added (FVA), bias, and bullwhip.
planning, the inputs are shipments or orders, and the output is a In essence, companies implement demand planning solutions
hierarchy of time-phased data. While companies have invested focusing on error and bias and never question if they are
in improving the engines, few have challenged the model. improving the demand forecast output to improve the signal.
(Model types include attribute-based modeling, probabilistic
modeling, attach-rate forecasting, and flow-based modeling
through the evolution of the graph.)
Table 5. Changing Maturity of the Role of the Forecast in Supply Chain Planning
Design of Network. Balance and Risk and Opportunity for the Organization.
Cross-functional Demand Collaboration: What-if for Demand across Commercial and Operational Teams
THE21OUTSIDE-IN PLANNING HANDBOOK | 2023 21
Rethinking Inventory
The third step is to define the role of inventory in the value chain. of inventory across industries in 2022 than at the beginning of
Inventory is the most critical buffer to absorb demand and the recession in 2007. The reason? There are five:
supply volatility. The design of inventory buffers is essential,
1. Longer Shipping Lanes. The impact of longer in-transit
and the traditional focus solely on finished goods safety
shipments and shipping variability increased inventory.
stock management is insufficient. Implementing inventory
management in outside-in planning requires a redefinition and 2. Product Proliferation. The addition of products to
clarity. The group must answer, “What is the role of inventory?” portfolios increased manufacturing cycle stock.
Along with the answer to the question, “What makes a good
3. Bullwhip Effect on Raw Materials. Establishing inventory
inventory plan?”
targets only through MRP introduces the bullwhip effect in
This is important because of the changing nature of inventory raw material management.
in the supply chain. In the 1980s, when supply chain planning
4. Increase in Demand and Supply Variability. Over the
was first defined, safety stock was a higher percentage of total
last decade, as supply and demand variability increased,
inventory, averaging 40-50% for each organization. Today, safety
traditional approaches focusing only on safety stock
stock is 10-15% of total inventory.
management based on demand variability were insufficient.
Inventory optimization increased in importance with the impact
5. Focus. The focus on functional metrics impedes the ability
of the pandemic. (Based on demand and supply variation,
to manage inventory. Effective inventory management
the form and function of inventory assess where and how to
requires organizational alignment. Only 5% of companies
store inventory and design buffers. For example, as variability
interviewed can answer, “What makes a good inventory
increases, companies need to shift from holding finished
plan?”
goods to storing raw materials and semi-finished goods.)
And, while inventories should be based on both demand and Ironically, inventory is also the most significant buffer and
supply variability, in qualitative interviews today with supply excellent source of waste, or MUDA, in the supply chain, creating
chain leaders, we only find a focus on demand variability. Only organizational tension. (The Japanese “Muda” word (無駄)
10% of companies include supply variability in the safety stock translates as uselessness or futility. In Lean management,
calculations. Muda represents the changes or actions that do not cause a
value-increasing effect on the product or drive improvement
As shown in Table 6, on average, companies hold 28 more days
Table 6. Increase in Inventory Across Industry Segments Over Periods from 2004-2022
Automotive Parts 49 55 64 69 81 32
Household Products 50 51 57 74 82 32
Chemicals 62 58 64 80 88 26
Automotive 35 39 41 45 49 14
Food 50 51 56 58 59 9
Semiconductor 61 68 80 91 68 7
22 22 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
that a customer will be happy to pay for.) Mature organizations material inventories are more volatile due to the bullwhip effect.
understand the differences between inventory as a buffer For example, in paper manufacturing, note the amplification of
and quickly resolve inventory waste issues, while immature the signal. No planning technology today measures and uses
organizations implement technologies betting on better the bullwhip impact in calculating raw materials inventories.
answers from optimization. We share a calculation of
Table 7. Definition of Form and Function of Inventory the bullwhip impact in the
While the traditional planning
Form Function Appendix.
solutions focus on managing
safety stock, they miss the Supplier owned inventory: In-transit Inventories: Inventory that is on trucks, In process flow evolution,
raw materials barges, and containers. The longer the trade-
focus on a holistic inventory the advisory group
lanes and the slower the mode, the larger the
strategy. As a result, total brainstormed the future
requirements for in-transit inventory.
inventory is not managed state. Note in the current
Company owned inventory: Cycle Stock: In the planning of production,
in existing systems in most state of functional silos,
raw materials finished good production is cycled to ensure
organizations. Today, network that the production lines are fully utilized.
planners work in isolation,
design technologies, in The average rotation between products on often using spreadsheets.
concert with supply chain production lines in consumer packaged goods is Currently, the organization
planning, help business three weeks does not see flow or manage
leaders set targets for Work in process (WIP) Safety stock: Inventory requirements to buffer variability. In visualizing the
the form and function of inventory demand and supply volatility outside-in state, demand,
inventory, as defined in Table Finished goods at the Seasonal Inventories: Inventories required to and supply are managed as
7. In outside-in processes, company warehouse support seasonal builds. flows through a collaborative
inventory targets for the form Finished goods in the Promoted Items: Inventories to support the platform. In this future, the
and function of inventory channel promotional lift to support a promotion. business leaders become
happen with each monthly the targeted users focusing
process cycle in the design step before S&OP. on the relationship of outcomes to a balanced scorecard and
collaborative platforms to agree on demand shaping/shifting
While most companies focus on finished goods inventories, raw
strategies and go-to-market plans.
Figure 9. Raw Material Inventory Comparison to the Value of Shipments for the Paper Industry
THE23OUTSIDE-IN PLANNING HANDBOOK | 2023 23
In the advisory board exploration to define outside-in processes, model the logistics and procurement constraints in concert
the group started by closely examining current processes and with manufacturing to drive a feasible plan. Managing direct
asking the following questions: materials in today’s planning architectures is a black hole, as
shown in Figure 10.
• What are the gaps in today’s approaches?
Figure 10. Drawing of the River of Demand for a Large Consumer Products Company
24 24 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
In contrasting the current and future state, the group envisioned available in role-based views to enable the democratization of
the movement from functional silos dependent on spreadsheets planning.
to an organization where demand is a synchronized set of flows
Figure 11. Visual Facilitation Drawing Contrasting Inside-Out Versus Outside-in Processes
______________________________
A constraint restricts system output. The constraint acts as a throttle, establishing an upper limit for the
production. The constraint is circumvented by designing a process or system to work around it or by
outsourcing work to another entity not subject to the same constraint.
_____________________________
THE25OUTSIDE-IN PLANNING HANDBOOK | 2023 25
Unlearning
The future state requires the rethinking of the planning change in the demand model. Contrast this future state with the
architecture. In the redefinition, the engines sense shifts in current state in Figure 8.
multiple flow inputs simultaneously using a learning engine
These demand flows are mapped to supply to drive bi-
informed by a planning master data layer. Various inputs are
directional orchestration. Note the alignment of the engines to
tested with each data analysis to understand the changing
a balanced scorecard versus using functional metrics as an
significance and relative importance of multiple demand inputs
objective function as shown in Figure 13.
(typically five to seven).
The knowledge graph helps visualize flow and drive insights,
Accomplishing this goal requires using a graph database and an
while the unified data model helps drive semantic reconciliation
ontological framework or cube to manage reference data. The
of multiple planning systems. (The average client has 7-9
master data layer ensures that planning factors like lead times,
planning technologies and over fifteen ERP instances.) The
conversion rates, and currency valuations are updated based on
ontological framework assigns the rules and policies based on
market shifts. In Figure 12, we share a conceptualization of the
flow.
Drivers
Demand
Data
Enterprise
Teams
Commercial
Manufacturing
Logistics
Procurement
INPUTS DATA MODEL ROLE-BASED VIEWS
OF FLOW
Forecast Value Added | Bias | Error (MPE) | Latency | Analysis of Shaping & Shifting | Bullwhip
The demand and supply flows are aligned using pre-defined struggled with the concepts of bi-directional orchestration,
orchestration levers in bi-directional orchestration. The levers questioning why today’s definition of S&OP was insufficient. In
include changing channels, demand shaping strategies, contrast, business leaders grasped the change more quickly,
postponement, alternate routing and sourcing, shifts in the exhibiting excitement while pushing to test the ideas. The
bill of materials, and alternate distribution and manufacturing awareness of consultants and technologists was absent on
strategies. Note that these bi-directional orchestration levers the issues of managing constraints across make, source, and
must be established as a part of the network design layer before deliver simultaneously. Most consultants and technologists
S&OP to balance the demand and supply flows and create a are comfortable with current taxonomies and less willing to
feasible plan. challenge the status quo.
As shown in Figure 14, bi-directional orchestration is an integral In the process, do not become distracted by the argument that
part of the S&OP planning and execution processes. concurrent planning is the same as bi-directional orchestration.
Both are important. Side-step the discussion by getting clear on
In the training sessions, the technologists and consultants
definitions through the insights in Table 8.
26 26 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Return on
Inventory Customer
Growth Margin Safety Invested
Turns Service
Listening Social Capital
Post Sentiment
Risk
Knowledge Graph Sensing
Unified Data Model
Events Weather NETWORK DESIGN
Demand Flow Supply Flow
Analyzer Analyzer Logistics Weather
CHANNEL SENSING Sensing
DEMAND BI-DIRECTIONAL SUPPLY
VISIBILITY ORCHESTRATION VISIBILITY
SUPPLY SENSING
______________________________
Bi-directional orchestration, as shown in series of workshops, the group reflected on
Figure 14, uses market data—both channel A critical insight at the end of three years the training focusing on unlearning. In Table
of work: the most significant challenge
and supply—to make trade-offs across sell, 9, we share the group’s collective learnings
is unlearning traditional supply chain
deliver, make, and source at the speed of processes. Unlearning is demanding, and unlearnings. The biggest challenge
business. Bi-directional orchestration starts requiring education and rethinking current of this group of experienced supply chain
with designing the orchestration levers; definitions. professionals was unlearning: it is tough to
augmenting the planning master data layer We must learn from the past, unlearn, and rethink the definition of planning. Surprisingly,
with market signals aligns the optimization be open to the future. the unlearning was more challenging
engines. As a result, network design _____________________________ for consultants and technologists in the
technologies are layered on top of S&OP in workshops than for the business leaders.
Figure 9 to design flows and the form and
Central to the unlearning is the role of the commercial teams in
function of inventory.
building outside-in processes.
At the end of the two years of working together through a
THE27OUTSIDE-IN PLANNING HANDBOOK | 2023 27
Multiple planners can see Democratization of planning with self-service by The large numbers of planners in global organizations
business results as they are business leaders (sales operations, marketing, increases process latency.
input and updates made. finance, operations leaders, logistics, and
procruement teams.)
PLANNING MASTER DATA
The collapse of planning Synchronization with intelligent, role-based There is a need for planning outside and inside lead time with
horizions into one planning consumption logic across planning horizons. different goals and work processes. Organizations became
period. more reactive during the pandemic, focusing on the operational
periods within lead time. However, the greatest business
results occur when decisions are made outside of lead time in
the strategic and tactical planning horizions.
Making decisions across make The orchestration levers can be pulled across The design and agreement on orchestration levers tie S&OP
and deliver together. commercial, operations, sourcisng, and logistics planning (tactical horizon) to an effective S&OP executional
teams in bi-directional orchestration. planning horizon.
28 28 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Recognize that unlearning must come before change management. Continuously challenge existing paradigms. The unlearning in Table 9
is a good place to start.
Order or shipment data is not a good proxy for Added steps for “collaboration in S&OP” Shift from a focus on error and bias in forecasting to
demand. adds process latency. flow.
Don’t confuse signal generation with visibility. Too many alerts without intelligence add We don’t have end-to-end planning processes.
noise and confusion.
Manufacturing is not the only constraint. Need Business leaders need to figure out what Data does not have to be perfect.
for bio-directional orchestration across source, to do next. How do you start?
make, and deliver.
The need for price/volume trade-offs. How do we define effective “what-if” The efficient supply chain is not the most effective -- the
frameworks? movement from a cost-based agenda to margin.
What-if for demand to visualize the impact of We need to know how good the model is There is a need for a visibility.decision layer to
demand shaping. - building trust in the process/system. democratize planning.
Importance of form and function of inventory Outside-in models are built by desigh. Sharing of forecasts across trading partners is fool’s
analysis. They are not an evolution. play.
THE29OUTSIDE-IN PLANNING HANDBOOK | 2023 29
2. For each organization, data was readily 6. Bullwhip measurement was new and
available. Each organization had valuable enlightening. The goal is to minimize the bullwhip
data that was not being used. impact on manufacturing and procurement.
Measurement of FVA in concert with the bullwhip
3. Three of the four companies deployed planning
reduces waste.
previously without testing the models. The existing
______________________________
What is the bullwhip effect? It is the phenomenon where slight variations in demand at the
point of sale can cause large amplifications to upstream supply nodes. Since the definition,
the concept has been taught through games like the Beer Game. Yet, no technology has
incorporated the calculation into supply chain planning, and there is no clear definition of how
to use the bullwhip factor in decision-making.
_____________________________
30 30 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Getting Started
Moving forward requires courage 8. Take a Hard Look at S&OP. Evaluate
______________________________
and organizational enlightenment. To the current S&OP processes based on the
WATCHOUTS:
drive change, follow the steps in this factors in this report.
handbook. Get clear on definitions.
9. Layer Network Design Modeling
1. Define Supply Chain Excellence. Don’t confuse engines and models. Most of the as Part of S&OP. Model the design of
market is selling new engines, but are unwilling to
Train the team on supply buffers and push-pull decoupling points
test new models.
chain definitions of efficiency, monthly as input into S&OP. Implement
Drive a cross-functional coalition for change.
responsiveness, and agility. Type this as a monthly process.
your product flows. Train. Test. Evolve. Don’t approach this as a
project with a well-defined ROI. 10. Sense Demand and Supply Flows.
2. Build a Balanced Scorecard. Build an outside-in knowledge graph to
On the journey, recognize that data does not have
Align the definition of supply chain sense demand and supply streams. Align
to be perfect.
excellence to a balanced scorecard. policy and rules to the streams.
_____________________________
3. Redefine Work. Define the roles of 11. Inform and Align Models. Build a
the organization in the definition of planning master data layer to improve
forecasting, budgeting, and inventory management. Get outcomes. Use market data for lead time, conversion, and
clear on the differences between marketing-driven and material availability in each planning run.
market-driven.
12. Evolve. After completing the first ten tasks, begin the
4. Map Demand Latency. Understand the latency of all search for a new technology, realizing that the current
market data and the order latency by channel. Latency definition of supply chain planning is outdated.
increases lethargy. Identify it,
13. Be Open to the Outcome.
remove the process barriers Table 11. Degree of Difficulty Listen to data patterns without
and measure latency to
Difficulty in Task bias.
improve performance.
Implementation
14. Get Clear on the Role
5. Understand the Current 1 Getting data. Cleaning and
of the Budget and ERP. The
State. Measure Forecast harmonizing the data sets.
financial budget is an input
Value Added (FVA) and the 2
to planning but should never
bullwhip in current processes.
3 Defining the model. be a constraint. ERP is the
Build a planning master data
4 Testing the model. transactional system of
layer to inform and align
5 Organizational change record but should never be the
supply engines/models.
management. backbone of the supply chain
6. Build a Balanced Scorecard. planning taxonomy.
The mission matters. Learn
15. Take on the Change Management Journey. When asked,
the art and science of balanced business trade-offs. Align
one participant in the test ranked the difficulty of the
bonus structures to allow the team to win.
testing elements on a scale of 1-5, with five being the most
7. Tackle Inventory Management. Measure inventory difficult.
effectiveness and set goals for the form and function of
inventory.
THE31OUTSIDE-IN PLANNING HANDBOOK | 2023 31
1. Planning Master Data: A data layer to define and align 10. Bi-directional Orchestration: Trade-offs across deliver,
market signals to define planning parameters to ensure all make, and source based on well-defined bi-directional
optimization engines align based on market shifts. orchestration levers in the tactical and operational planning
horizon based on market shifts.
2. Unified Planning Data Model: A NoSQL layer to harmonize
the differences between different planning models. The As a result, business leaders should approach the work on
NoSQL layers enable the production of a real-time inventory outside-in processes as a joint development project with
signal to better manage the trade-offs of Available to technologists. While the leaders in testing—Kinaxis, o9, and
Promise (ATP) and Allocation. OMP each have pieces of the solution, no company has stepped
forward to market and sell an outside-in platform to business
3. Form and Function of Inventory: A solution to recommend
leaders.
the form of inventory to be held at what level based on
demand and supply variation.
32 32 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Conclusion
The building of outside-in processes offers great promise for planning and redefining work. The lack of fit of today’s
the organization to sense and adapt. In the face of increasing technologies resulted in the creation of large teams of planners,
variability, this grows in importance. The most significant barrier both inefficient and often self-serving.
is unlearning conventional planning concepts to be open to new
As business leaders begin the journey, don’t stop with demand.
outcomes from outside-in planning. A second obstacle is the
Drive bi-directional orchestration across demand and supply
lack of understanding of the potential of new forms of analytics
processes to enable trade-offs and improve the feasible plan.
in the industry. The key is to redesign the model and the process
to improve work. A frequent mistake is to use more advanced The potential of an outside-in planning process looms large.
analytics in traditional advanced planning architectures, which The redefinition of supply chain planning to be an outside-in
has minimal value. The third obstacle is redesigning work to market-driven process improves Forecast Value Added (FVA)
drive self-service by business leaders while moving the current by 10%, removes bias, improves the time to know by 150%,
planning role to one of orchestration. and decreases the bullwhip by at least 50%. In the research, we
find that the deployment of an outside-in model always beats
The shift from inside-out to outside-in processes is not an
an inside-out model, reducing process and data latency while
evolution. Instead, it is a step change requiring the redefinition
improving the organization’s ability to make decisions at the
of supply chain planning technologies and processes. The
speed of business. The impact is better fulfillment with lower
opportunity is to improve the demand signal, decreasing
costs, less waste and the right inventory to power growth.
demand latency and the bullwhip effect while democratizing
APPENDIX
34 34 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
S (Oikt) / [ΣTt=1 (Oikt) × 1 ] Step 3: Calculate the bullwhip amplification factor. A measure
(Y-X)
A simple but less accurate calculation is to compare the
X
Coefficient of Variation of channel point of sales to customer
orders and customer orders to planning orders (an output of the You now have a straightforward way to calculate how variability
supply plan) and the comparison of planned orders to purchase at the point of demand is amplified in your upstream orders.
orders. Like many KPIs of a business, the most crucial point is to
start the measurement process and then work on continuous
Step 1: Create a simple table and chart to show actual demand
improvement initiatives to improve the metric over time. Also,
on an upstream supply node. This example could be a customer
take note of aggregation and seasonality effects. As Waller et
DC supplying a set of retail stores. Alternatively, a digital
al. (2015) highlighted, “data aggregation can mask the extent
fulfillment center could provide individual digital orders directly
of the bullwhip effect, and that seasonality in the data has a
to consumers. Simply drawing this picture will often shock
dampening effect..”
companies at their lack of inventory synchronization to actual
demand. After defining your bullwhip impact, your focus should shift to
possible countermeasures to reduce the bullwhip impact and
Step 2: Calculate the coefficient of variation for sales and orders
associated waste.
at the bottom of your data set within Excel (See step 1 table and
36 36 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
Definitions
The shifts to outside-in thinking are not a process evolution Demand Shaping. The increase in baseline lift is due to
for planning. The concepts are evolving. There is currently no channel shifts. This could include competitive activity,
technology that provides an outside-in planning system. In this channel incentives, or manufacturing demand-shaping
paper, we use these concepts. Getting clear on definitions is programs.
essential for the journey.
Demand Shifting. Implementing a program to increase
Agile Supply Chain. Products with high COV and low flow demand lift; however, the program does not improve the lift.
require the redefinition of capabilities to drive consistent Instead, the demand is shifted from period to period without
cost, quality, and customer service performance. We define an increase in baseline sales.
the design of these capabilities as the agile supply chain.
Demand Visibility. A collaborative what-if analysis layer
Balanced Scorecard. The organizational alignment of allows business leaders to analyze demand flows based on
planning outcomes to maximize a balanced scorecard to shifts in product mix, demand shaping programs, and the
improve value. Using the balanced scorecard, functional changing market response.
metrics focus on reliability to drive cross-functional
Efficient Supply Chain. The lowest cost supply chain.
improvement in balance sheet metrics. Reliability metrics
include a shift from the focus on demand error to drive Forecast Value-Added Calculation. The process of
improvements in Forecast Value Added (FVA) in planning, comparing the output of the forecasting process to the
from OEE to Schedule Adherence in manufacturing, naive forecast to drive lean process improvement in
improvement in first-pass yield in operations, a focus managing the demand signal.
on first-pass tender acceptance in transportation,
Form and Function of Inventory. A solution to analyze
and improving on-time and in-full shipments in order
the targets by type of inventory—cycle stock, in-transit
management.
inventory, safety stock, and seasonal goods—to
Baseline Demand. The market potential for a product with recommend which form of inventory—finished goods, work
no demand shaping. in process, or raw materials-- to hold at what stocking level
based on demand and supply variation.
Bi-directional Orchestration. Trade-offs across deliver,
make, and source based on well-defined orchestration Market-driven Demand Management. The broadcasting of
levers in the tactical and operational planning horizon based demand flows in role-based views across the organization
on market shifts. with visibility of demand and market latency, the baseline
demand, bullwhip impact, demand shifting/shaping, and
Bullwhip Effect. The amplification and distortion of the
Forecast Value Added (FVA).
demand signal through linear processing.
Market Drivers. The demand drivers in the market.
Demand-Driven Process Management. The use of channel
These include shifts in climate and weather, government
data to determine demand flows. The dependency on
subsidies, economic cycles, disease, war, and fashion
channel data versus order/shipment data reduces demand
cycles.
latency.
Planning Master Data. A data layer to define and align
Demand Drivers. The market factors that influence channel
market signals to define planning parameters to align
purchase. This includes weather, events, social media, and
optimization engines based on market shifts (actuals), like
market positioning.
lead times, currency shifts, efficiencies, or conversion rates.
Demand Latency. The time offset between channel
Process Latency. The time it takes an organization to make
purchase and the translation to an order.
a decision.
THE37OUTSIDE-IN PLANNING HANDBOOK | 2023 37
Procurement Buyer Workbench. The translation of demand River of Demand. An instructional activity to help supply
flows to drive bi-directional orchestration to build the chain leaders transition from thinking of demand as a series
procurement buy plan in the tactical planning horizon. of time-phased data to flow.
Reactive Supply Chain. A supply chain that focuses on Self-Service Planning. Planning becomes a primary tool for
reaction, often a knee-jerk reaction. Many companies business leaders to drive planners. In the process, supply
confuse a reactive and responsive supply chain. chain planners become orchestrators, and the business
leaders become the primary users.
Responsive Supply Chain. The supply chain senses and
drives a proactive response with minimal latency. S&OP Playbook Execution. Translation of S&OP plans into
playbooks to drive action while rationalizing the tactical and
Revenue Management Effectiveness (Test & Learn).
operational planning horizons.
Analyzing demand shifting versus shaping while analyzing
the balanced scorecard impact. Enables continual analysis Unified Planning Data Model. A NoSQL data layer to
of baseline demand and drives shifts in demand-shaping harmonize the different planning models while preserving
tactics to improve baseline demand. the semantics.
38 38 THE OUTSIDE-IN PLANNING HANDBOOK | 2023
THE39OUTSIDE-IN PLANNING HANDBOOK | 2023 39
Background
As an analyst at AMR Research, Lora Cecere’s fascination with demand-driven value networks started twenty years ago. This report is
based on twenty years of experience building an understanding of constructing demand-driven prototypes as an industry analyst.
With over twenty-two years as a research analyst (AMR Research, Altimeter Group, and Gartner Group) and
now as the Founder of Supply Chain Insights, Lora is recognized as a global supply chain expert and is a
frequent speaker on the evolution of supply chain processes and technologies.
www.supplychaininsights.com